Archives for March 2019

ROCE-Growth Matrix, and Few Potential Wealth Creators

March 25, 2019 | 16 Comments

One of the most important parameters to judge a business’s quality is its ability to generate a return on the money it employs on fixed and working capital. It is also one of the key metrics, which when measured over years, can help you assess a management’s quality.

Return on capital employed or ROCE also indicates a business’s ability to set prices that enables it to earn adequate margins, which when better than competitors also suggests the presence of moat.

Simply defined, ROCE shows how a company uses its capital efficiently by examining the profit it earns in relation to the capital it uses during a given year.

The formula commonly used to calculate ROCE is – Profit before Interest and Tax (PBIT) divided by Capital Employed (Equity and Debt).

Stock Analysis: The Most Important Things (Plus, A Case Study)

March 18, 2019 | 1 Comment

I recently came across a video* of Warren Buffett talking to a few B-School students on his trip to India in 2011.

The host asked him this question – What exactly goes through your mind when you’re actually making an investment?

Buffett’s reply to this question was brilliant for it contained the crux of everything he has said over the years about how to evaluate a certain business and it’s future economic potential (text in bold and brackets are mine) –

Well, if I drive by a McDonald’s stand or a Kentucky Fried Chicken stand I will automatically think to myself “What is this business worth?”

[Read more…] about Stock Analysis: The Most Important Things (Plus, A Case Study)

India’s Market Leaders: My 10 Key Observations

March 15, 2019 | 9 Comments

This issue of Outside the Box newsletter is authored by Jatin Khemani. Jatin shares his key observations from analyzing market leaders across industries in India.

One common advice I find veteran investors passing on to next-generation investors is to look for companies dominating their industry and enjoying entry barriers ensuring their profit pool share is protected.

Now, ideally, we may think that the top 3-4 players by market share in any category should be qualified as ‘dominant players’ even if their respective market share is in single digit. However, for the purpose of this research, I have restricted my analysis to only those companies that enjoy at least a 35% share in their respective categories.

You must be thinking that it is quite a stringent filter and there would only be a handful of companies that will make it to the list – after all, we are a free economy with enormous capital chasing opportunities on one side and ever-tightening regulations in the form of competition commission etc., on the other.

Rule Number One: Never Lose Money

March 11, 2019 | 21 Comments

When in school, I used to participate in our annual 6-KM cross-country race. Just the idea of “running away from school” was exciting for me, and thus I participated every year. And every year, there was this classmate of mine, Anshul, who won the race, beating all of us by at least half a kilometer and more.

While I did not look much into the reason then why Anshul was consistently winning the race every year, I now know why it was so.

Here is the speed chart of me and most of my other friends vs Anshul running that 6-KM race –

You know the reason now, don’t you?

Dealing with Stupidity in Investing

March 2, 2019 | Leave a Comment

Here’s something new I have initiated to share with you stuff I am reading and thinking about in recent times.

Click here to download the document, or click on the image below.

Let me know your thoughts on the initiative, and what else you would like to see here.

Enjoy your weekend,
— Vishal